Geron Corp (GERN) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2009 Geron Earnings Conference Call. My name is Becky, and I will be your coordinator for today. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the presentation over to your host for today's call, Mr. David Greenwood, Executive Vice President and Chief Financial Officer. Please proceed.

Thank you. Good morning, and welcome to the Geron earnings call. I am David Greenwood. With me is Tom Okarma. This is an earnings related call, and we will begin with a summary of operating results for the quarter. Our agenda then includes an overview of recent operating highlights of the Company, a summary of our plans for the second half of 2009. Following that presentation by Tom, we will have a general Q&A session. First, two informational items.

In the event any forward-looking statements are made during this call, please understand the comments are made subject to the Safe Harbor provisions of the Securities Act of '95. Any forward-looking statement involves uncertainty and we refer you to the risk factors detailed in filings with the SEC.

Secondly, as mentioned, all participants are currently in a listen-only mode. The lines will open for the Q&A, and this call will be available on our website for webcast replay until August 31.

Revenues from license fees and royalties increased over the comparable three-month period in 2008, and the comparative number for six months year-to-date is up over 2008, adjusted for a milestone payment. Other cash influence to the Company during the quarter included $363,000 of interest income, down substantially from the 2008 period, which reflects the positioning of the yield curve only. Our marketable securities portfolio remains intact with no write-downs or provisions for write-downs.

Second quarter R&D expenses were up significantly period-to-period, which is attributable to additional hiring to support trials, and to resource development teams, as well as external costs related to conducting trials. G&A expenses were down comparatively for the quarter and year-to-date, which is not coincidence; rather, the result of conscious cost management.

We ended the quarter with $188 million cash on the balance sheet, and I would peg our net burn number for the year in the neighborhood of $45 million. The Company is obviously funded for the near term. At this point, I will turn it over to Tom.

Thank you, David, and good morning, everyone. Thank you all for joining us this morning. There were really four material announcements in the second quarter that I will make some comments on today, before I turn it over to questions. Two on the Oncology side. In April we announced the hiring of two very senior Oncology executives to Geron, Steve Kelsey from Genentech, and Hassan Movahhed from Elan. Secondly, we had a very successful series of presentations at the AACR meeting in April on imetelstat and its effect on stem cells, which I will spend some time on in a moment.

On the stem cell side, there were two events. At the end of June we announced a very important deal between Geron and GE Healthcare for the commercialization of stem cell technologies for drug discovery. And, lastly, in July we published in Regenerative Medicine a publication on the characterization of dendritic cells that we scalably produce from human embryonic stem cells.

But, first, personnel. We are very pleased to have onboard Steve Kelsey, who comes to us from Genentech, where he was the Vice President of Clinical Hematology and Oncology. Steve has an extraordinary breadth of experience at Genentech and before then at Pharmacia, ranging from pre-Phase I research all the way through supervising post-marketing studies for approved products. Interestingly, he was the lead physician for Sutent, which is now marketed, as you know, by Pfizer. He is British, he has an academic background at St. Bartholomew's, and has been in this country since the mid-'80s. He is doing well and he has already made an impact on strategic direction for the Oncology program.

The second senior executive, Hassan Movahhed, is a very experienced clinical operations executive. He has had experience at Elan, Amgen, Bristol-Myers Squibb, where he had been Vice President and Head of Global Clinical Operations. A lot of experience in oncology, but broader than that, in chronic disease as well. And we do anticipate in the next months that he will extend his supervision to the clinical operations on the Regenerative Medicine side of the Company as well. So, two very good people that we really are proud to have been able to retain -- or to recruit.

On the AACR story, there were five presentations that demonstrate the growing recognition that imetelstat, GRN163L, affects cancer stem cells to the same degree and via the same mechanism that it affects bulk tumor cells.

So, the list of tumor types with known cancer stem cells that are inhibited by imetelstat is now growing and includes non-small cell lung cancer, breast cancer, pancreatic cancer, prostate cancer, pediatric neural tumors, gliomas and neuroblastomas, as well as myeloma, which we had showed earlier in last year's ASH presentation.

So, this is essentially telling us that the list of cancer stem cell types that are inhibited by this drug is beginning to approach the total list of human tumor types that are affected in bulk. And this by modality of bulk and stem cell activity is without precedence in the oncology/ chemotherapy arena, and no doubt will affect the way in which we develop this drug for registration.

So, just quickly, the specific presentations of the group at University of Texas Southwest, with whom we have worked for years in imetelstat, did some work on non-small cell lung cancer. You probably know that 95% of non-small cell lung cancer samples are highly telomerase positive, and the degree of telomerase positivity in non-small cell lung predicts a bad outcome and resistance to chemotherapy. As you know, we are in a combination study of imetelstat in non-small cell lung with carboplatin and paclitaxil.

And so what these folks showed is that the non-small cell lung lines that they use when treated with imetelstat stopped forming their colonies, which is the phenotype of a cancer stem cell.

More importantly, when they did gene expression analysis after imetelstat treatment, the gene expression pattern that is associated with cancer stem cell proliferation was completely altered. So, it demonstrates that the downstream effect on gene expression in the cancer stem cell from telomerase inhibition is profound. It is a very important study.

Folks at Geron study pancreatic and breast cancer stem cells, again, using lines with similar results. A breast line and a couple of pancreatic lines shut down their in vitro proliferation, and if we pre-treat the pancreatic stem cell with imetelstat and then transfer that treated stem cell pool to animals, you get markedly decreased in vivo tumor formation. Again, supporting the role of the drug in pancreatic cancer, and, again, highlighting the importance for tumor progression of the stem cell compartment in the tumor cells.

Another paper from UTSW looked at prostate tumor initiating cells. This is an equivalent of the prostate cancer stem cell. They used four human prostate lines and showed the same thing, and imetelstat shut down the proliferation of the lines and increased their sensitivity to docetaxel and doxorubicin, also decreasing colony formation. And when they inhibited imetelstat directly with the prostate tumor initiating cells, telomerase was inhibited and the telomeres shortened.

In Toronto, at the Hospital for Sick Children, a very important study demonstrated that in certain pediatric neural tumors, gliomas and neuroblastomas, interestingly, we have known for some time that whether the tumor is telomerase-positive or not actually predicts survival. So, if the pediatric neural tumor on biopsy is telomerase-positive, it turns into a very aggressive tumor, which is generally chemo, radiotherapy resistant.

In contrast, if the biopsy of the glioma is negative for telomerase, very often these tumors will spontaneously arrest. That is now used commonly in the clinic. Well, this study showed, surprisingly, that the telomerase positivity in these pediatric lines resided predominantly in the stem cell compartment. The mature glioma cells were telomerase negative, and they showed essentially the same results, incubating in imetelstat caused rapid senescence of the stem cells and increased their sensitivity to a radiation.

And, lastly, some work done by Geron on the myeloma story showed, once again, that the myeloma stem cell and the bulk fraction are inhibited by imetelstat, by the telomere length has accordingly shrunken, and you dramatically impact colony formation in vitro.

So, again, without exception, every cancer stem cell line that is studied by our collaborators or by researchers at Geron shows the same impacts, which is very important for the future development path of this compound.

Turning to the stem cell side, we announced an exclusive global agreement with GE Healthcare, which is a $17 billion unit of General Electric, employing 46,000 people worldwide. And this agreement was to commercialize stem cell drug discovery technologies. It is a global exclusive alliance and license agreement. What we have done is licensed our IP estate and we sublicensed our WARF license to GE for worldwide collaboration to develop embryonic stem cells for drug discovery. The deal is fairly standard in terms of up-fronts and milestone payments and royalties, none of which has been disclosed.

The first product coming out of this collaboration will be cardiomyocytes. We have already shown that these cells contain all of the normal ion channels and intracellular calcium stores, and that the kinetics of movement of sodium, potassium and calcium through the channels is affected in a dose response fashion by calcium channel blockers, (inaudible) channel blockers, and so on. So, again, these cells, not surprisingly, have all the bells and whistles of normal human cardiomyocytes. And therefore, because we can make them scalably have potential application in a wide variety of drug screens looking for toxicity as manifest by altering these ion channels.

The second product will probably be hepatocytes, which is not quite as far along in development as cardiomyocytes, but obviously that is the big cell type in terms of looking for induction of P450 enzymes by drugs under development, to understand how the liver metabolizes drugs, and also to understand what enzymes get induced or inhibited by the drug to understand how the drug should be used clinically in the context of other pharmaceuticals.

So, essentially, this is a pretty important deal to us and for the field. It certainly recognizes by a large commercial company the preeminent IP position in development status of Geron in the field. And we do think that this will be a reasonable economic opportunity for us in the near term.

Lastly, in July we published in Regenerative Medicine the characterization and scalable production of embryonic stem cell derived dendritic cells. Essentially, we showed that these dendritic cells in the same way we just spoke about cardiomyocytes, display identical functional characteristics, in this case, to blood monocyte-derived DCs. And we do expect that using embryonic stem cell dendritic cells as a standardized, off-the-shelf cellular vaccine is likely to be more cost-effective and reliable compared to current patient-specific approaches including our own VAC1.

So, we demonstrated in the manuscript that the ESBC's take-up, process and present antigen normally, the DCs will migrate. They produce pro-inflammatory cytokines and they induce antigen-restricted T cell responses to viral and tumor antigens, including telomerase.

And, lastly, but importantly, we are the only group who has shown how to produce these cells without either serum or feeder cells, making these scalable and compatible with clinical procedures.

So, with that, I will turn the call over to Q&A.

(Operator Instructions) And your first question comes from the line of Joel Sendek of Lazard Capital Markets. Please proceed.

Thanks. Two questions. First, on the GE partnership. I know a lot of this stuff is confidential, but should we be putting in or assuming any current revenue over the next year or two from that arrangement?

I hope so, Joel, is the answer. I think when we announced the deal, we put in the press release that we anticipated first product launch in early next year, 2010, and we might beat that, in fact. So, I think we have said that GE has as many as the first five product applications penciled out, and they are fairly thorough when they pencil something out. So, they have work plans, development plans in place.

If they meet their objectives, then over your time frame of the next year or two, we will have not just cardiomyocytes out there, but some number of first applications. And, as Tom mentioned, while not announced, we are very happy with the terms of the transaction, and while those revenue flows will not fund the Company, they will be noticeable.

Okay, thanks. And then if you can give just a quick enrollment update on the vaccine trial and the spinal cord injury trial?

Sure. We are making really good progress on the vaccine enrollment. We are now a quarter ahead of our most optimistic projections. This is both due to increasing enthusiasm at the sites and adding, I think, two more sites. So, we have a total of five medical centers that are now enrolling. I think the enthusiasm is coming from the fact that we have dramatically increased the efficiency of generating the dendritic cell, so we have over an 80% success rate in deriving and having administrable vaccine now. That's important.

And the ASH abstract in December will detail where we are in terms of putting people with high risk for relapse into what appears to be a durable remission. I will caution everyone, though, that the Kaplan-Meier plots, which are the gold standard for really ascribing significance to the treatment or not, that won't be available for another year. I mean, there is nothing we can do about that, it just requires that length of follow-up.

So, we are very happy, and we are going to probably actually extend the recruitment period because we have done so well in bringing patients in under budget and under time, and we kind of like what we are seeing as to the investigators. So, that protocol is going to continue.

On the spinal cord injury, we are getting really close, so let me just -- I did expect this question. It's a big thing. I would say to everyone that while we do appreciate the importance of the first patient coming in, the breadth and depth of our program here is to get all these sites onboard and progress beyond even the first 10 patients that we have approval for to study. So, that is the reason why this broad net, because we've got lots of different stages of this trial to get through before we know what we've got.

So, we have completed the training for dose preparation. I think I have disclosed this before, that in these medical centers you have to thaw the vials, put them up in a fluid for injection, and the you have to do some stat bacteriology to show that that dose is sterile. Now, that is cellular handling, and most neurosurgical wings don't have that capacity. So, what we have to do is enlist the bone marrow transplant wings of these medical centers to do for us on contract the cell preparation. And we have trained everybody to do that.

We have completed the first round of surgeon training, and that is not so much to teach them how to do the procedure as it is they have to pass a test of being able to assemble the syringe positioning device. It is delivered to the OR in sterile packs, but it is dissembled. So, the surgeons have to learn how to put the SPD together in less than a certain number of moments correctly, and that has been accomplished.

We have held our investigator meetings, which was attended by representatives from all seven sites, and that went extremely well. We are now in the process of training the neuroradiologists and doing all of the paperwork in parallel, including contract negotiations, budget negotiations, IRB and stem cell research committee approvals. And that is also going very well.

So, we have two IRB approvals and escrow committee approvals. One, in addition, is a conditional approval, and there are four others in process. We are doing the budget negotiations all in parallel, and thus far we have seen nothing that makes us nervous about getting this trial off the ground.

Okay. Back on the vaccine trial. How many patients have you enrolled? Have you disclosed that?

We have 18 patients that are under treatment now.

Okay. All right, thank you very much.

Thank you, Joel.

And your next question comes from the line of Mark Monane of Needham & Company. Please proceed.

Greetings from the East. Thanks for going over your progress over there in the West. A couple of questions, please. I was intrigued by your comments about the cell being telomerase-negative and telomerase-positive. Does this suggest to you that there might be a biomarker to use a priority in your clinical trials that may be in the real world in order to determine whether the population may be enriched with stem cells and therefore a patient might have a better response versus tumors being more mature may be telomerase-negative?

Right, good question. I know you have others, but let me answer this one. First, the segregation of telomerase positivity between bulk and stem cells is only relevant for the glioma story, the neuroblastoma story. So, it is a very small subset of the whole world of oncology. That being said, what you concluded from that study is exactly correct and frankly is the standard of care. A pediatric patient presenting with a neuroblastoma, get the biopsy, and if the biopsy is telomerase-positive, that patient gets treated.

Obviously, we are not studying brain cancer, but that may be a possibility in the future, and that would perfectly fit in with the way we would handle, whether that child should or shouldn't get imetelstat.

More broadly speaking, what we are trying to figure out is whether we could use a more broad discriminator, and it wouldn't be telomerase activity, because most tumor cells make a lot of telomerase. The issue, however, might be telomere length. So, that is why we are developing this STLA assay, single telomerase length assay, which is a PCR-based, very difficult assay to make clinically applicable, but we are making progress on that. And that could be a screen to identify patients whose telomerase length in their tumor is short, which would make them ideal candidates for the telomerase inhibitor. So, that is a possibility. But, again, the strict segregation of telomerase in the stem cell pool and not in the bulk pool is only true for glioma.

Very helpful. Sticking with imetelstat, could you comment on the CLL trial, which is underway, as well as the solid tumor lung cancer, which seemed to be something that gathered some very early interest?

Sure. So, in all of these studies, what we are really about to define is how to deliver the drug at a highest possible level without toxicity for three or more months consecutively. And that is really what we are doing in all these studies with the various amendments to altered dosing.

So, the CLD study we have now moved to two weeks on, one week off, and that we think is an important change to enable or to prevent, rather, the thrombocytopenia that can occur with this drug. And we have successfully been able to increase doses beyond the dose where we first see thrombocytopenia by going from infusing it every week to infusing it two weeks on, one week off.

The solid tumor study is actually already on a two-on, one-off schedule, and we are almost at 10 mg/kg in that study. So, we are now changing that study to giving the drug twice a week, two weeks on, one week off, which we think is the definitive optimized way to deliver this drug.

On the non-small cell lung combination study, we are beginning to get some combination toxicity now, again, in bone marrow, due to the combination. I mean, obviously, that is the rationale for simultaneously testing this drug as a single agent and in combination. Because clearly the tox profile is going to change when you use this drug with or without first or second line.

So, we are now -- we are going back to, I think, 6 mg/kg in the combination study to minimize the toxicity of the drug in combination.

So, the simple overall take-home message is that everything is progressing. We are making what we think will be the final protocol amendments to optimize the way the drug is delivered, and we still have as a goal for this Company by end of year to define their registration pathway for the compound.

And your next question comes from the line of Joe Pantginis of Merriman Curhan and Ford. Please proceed.

Hi, guys. Thanks for taking the question. Tom, just a couple quick questions. First, on VAC2, what are the current initiatives and how is it going in bringing that cell line up to speed?

Good question. So, you know that we have been adamant about trying to segue from VAC1 to VAC2 ASAP. We do not have yet direct head-to-head comparison of VAC1, VAC2 in vitro. That is actually kind of difficult to do, if you think through the actual biology. But the paper that I summarized definitely shows that VAC2 has got all the bells and whistles of VAC1, and obviously has advantages of being scalably producible and avoiding, although the individual patient variables of disease, prior chemotherapy, and impact of the disease on their immune response.

Now, having said that, this is still a research program and it competes for resources and people and facilities with cardiomyocytes, which have gone up because of the GE deal, hepatocytes, pilots, and increasing the scale of OTC1 because of the very exciting line extensions that we have in Alzheimer's and stroke. So, that means we have a lot of hard choices to make about prioritizing what cells go into scale-up production and validation in what order? And that is a tough one to simply make a decision on.

I would say that we are looking for some guidance from the AML study as compared to the already completed prostate study at Duke, as to where we would take VAC2, into what indication. That is one of the open questions at this point. On the other hand, we have made tremendous progress on cardiomyocytes and now islets, and given the line extension possibilities, what I am getting to is that I think we are going to be de-prioritizing VAC2, at least temporarily, to get our act together on scalable production of islets and cardiomyocytes.

That is fair enough, and if I could just follow-up on comments you made on the spinal cord study. Obviously, it has been at the forefront of Geron for several months now and investors are very interested in it. You did mention a lot of the back office concepts that are going on right now and the successes that you have had in bringing the sites online. What do you consider the gating factor at this point to enroll the first patient? I am just wondering if you think there are any potential issues at this point?

Right, good question, and I didn't really address that in Joel's question. So, remember that we are dealing obligatorily at the beginning with thoracic complete injuries. They are rare because of car airbags, compared to cervical complete injuries. So, right out of the box we are dealing with 20% to 25% of the entire acute spinal cord injury marketplace. So, you already have rate-limiting step because of the necessity of starting with thoracic completes.

Secondly, for those thoracic completes there is a very complex and precise algorithm inclusion/exclusion criteria. And this again is done for both patient safety and for the integrity of the trial, by which I mean if there is a response, a positive response, the degree of intensive investigation that the patients go through prior to enrollment essentially assures us that these are patients incapable of spontaneous recovery, and therefore any durable improvement in their neurological status is likely due to the intervention. We can't prove that without a controlled study, but it raises the likelihood of that being true.

Conversely, as you know, these are very complex patients, and a complete thoracic injury is a difficult row to hoe. These patients get all kinds of secondary and tertiary symptoms over the months after the injury. So, therefore, if someone all of a sudden gets allodynia in their arm, is that due to the injection, which is why we have to be very sure that we can visualize the entire spinal cord, up and down, after the placement of hardware, so that we can rule out any kind of adverse growth due to the cells that is causing the symptoms. Because it is very important that we know any symptoms that occur in these patients are not, or are, whatever the truth is, due to the injection.

So, this is not going to be the rule for the entire program, but it is the hoop we have to jump over in order to get this started. So, the simple answer is these are rare patients, which is why we want seven centers across the country, and worse than that, each rare patient who might qualify has a lot of reasons why they may not that are part of the protocol. Some of those exclusion criteria are obvious and necessary. They actually came from the Company. Some were added by the spinal surgeon groups, the principal investigators. And others were added by the FDA in their review. So, it is a very stringent protocol, rightly, because, first, we are not going to do any harm.

Thanks a lot, Tom, for the added info.

You're welcome, Joe.

And your next question comes from the line of Ren Benjamin of Rodman. Please proceed.

Hi, good morning, and thanks for taking the question. One of my questions has been answered, so I'll just ask a general milestone question here. Can you just go through sort of the remaining milestones for this year? I mean, obviously, the initiation of the spinal cord injury trial, and I think you mentioned earlier that there will be an ASH presentation or (inaudible) you submitted for the vaccine. Can we go through any of the drivers that we you see right now?

Sure, Ren, and they have not changed since I've been presenting the Company at investment banker talks this year. So, you are right, the first and foremost one on the stem cell side is to begin enrollment in the spinal cord trial. And, believe me, all pedals are to the medal to get that to happen.

On cardiomyocytes, obviously, the GE deal was a surprise. We wouldn't even be working in that for a while. But to support that deal, to support the work plan, and to support the kinetics of product introduction, we have done a lot of work on scaling and finalizing the manufacturing process for these cells, cardiomyocytes. So, that is the main goal for CM1, mainly to finalize and freeze the scalable manufacturing process, and once that is done, to hold a pretox meeting with FDA. I can tell you that we have now successfully gotten human cardiomyocyte survival in the pig model, and that has never happened before to anybody. And that is really important as another model to rule out arrhythmogenicity.

So, we are making really good progress on both the cell for the GE deal, and the scalable process of the cell for clinical development and meeting with the FDA.

Thirdly, in islets, you have heard me say a hundred times how difficult getting islets to our specification has been, and that we have had about a month ago a phenomenal breakthrough. Literally, we shook down the process from beginning to end and made a number of changes in all of the steps, and that has resulted now in a process that takes only 20 days from breaking the master cell bank to finishing the islet prep. And we are pleased to say that the insulin content and somatostatin and glucagon content of these ES-derived islets is spectacular and much higher than we have ever gotten before. That has been repeated and this prep is now in animal studies.

So, what we hope to do by end of year is to demonstrate the enhanced human insulin secretion in vivo in these animals using a clinically applicable delivery device, so we are on track for that.

And on VAC2, we want to transfer the manufacturing process to process development and design our preclinical package to support the IND submission. Now, one of the earlier questions from Joe was how do we prioritize these different cell types?

Well, one of the arguments in favor of VAC2 is that we have shown these cells migrate and present antigen normally even after irradiation, and the irradiation dose is sufficient to prevent any cell in that preparation from dividing. That should mean, we hope, that we will not have to do the traditional whole year tumor genecity study, because the irradiation prevents that possibility from occurring. If that gets confirmed, when we sit down with the Agency, that will go into the mix about prioritizing which cell comes out of the box next.

On the Oncology side, the main goal here is to present what we are collecting, and we will have one or two presentations [Iortek] and hopefully a presentation at ASH, and the main goal is to really develop the registration plan.

So, there is a lot of data coming in now that is really helping us to fine-tune the thinking. And, again, I cannot over-emphasize the discovery of the effect of this drug on tumor stem cells, which I think will have a major impact on how we use this drug clinically. I don't want to get ahead of our thinking yet, but we will announce that when we have made that decision.

And then on the VAC1, we have already met the enrollment goal for the whole year, so we are way ahead of schedule, which is why we are going to continue to enroll, because we like what we are beginning to see. And we continue to collect the clinical and immunological data, again, for the ASH presentation. But, again, reminding everyone that the real issue is the Kaplan-Meier plots, and that is a measure of remission duration, and that we won't be able to construct realistically for another year. So, those are the goals, Ren.

Perfect. And just as a follow-up, has enrollment completed, or an MTD been reached in any of the telomerase inhibitor trials yet?

Well, I think we are at the MTD in the non-small cell lung combo.

Okay, okay. Great, and I think that is it. Thank you very much.

You're welcome, Ren.

Ladies and gentlemen, this concludes your question-and-answer session. I would now like to turn the call back over to David Greenwood for closing remarks.

It's a very long list of attendees on this call this morning, and we appreciate that on a Friday in the summer, and I hope everybody gets a few days off next month. Before our next earnings call, you will have a number of opportunities for updates including as many as four investor conferences in the month of September. So, look forward to seeing many of you there. Goodbye for now.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.